A look at the big picture... What happened to AI stocks... History is rhyming... Good news, bad news... There are stocks to own now... The burst will spare few...
There's no ignoring the AI sell-off...
As we reported throughout last week, the AI giants spooked the market after reporting their latest round of earnings...
First, Meta Platforms (META) sold off after reporting quarterly results on October 21, which included negative free cash flow and more than $30 billion in capital spending for the quarter.
Alphabet (GOOGL) fell roughly 12% on Thursday after its earnings report – erasing close to half a trillion dollars in market value in one trading session. For the second time this year, Alphabet reported negative quarterly free cash flow.
Amazon (AMZN) reported after Thursday's close, missing Wall Street's estimates on both revenue and earnings. Its cash burn also grew alongside capital spending. Shares fell 6% in after-hours trading.
Then there was Intel (INTC), which plunged 29% on Friday on a weak fourth-quarter forecast. That's a stunning one-day loss for a company whose largest shareholder is the U.S. government. (More on that in a moment.)
The catalyst for much of the selling?
Questions about when – or if – these companies' AI spending and investments over the past few years will pay off with revenues and profit.
These concerns aren't new – we've been writing about them for a few years now – but it looks like Mr. Market increasingly cares about them now. That's why the "flashing red" numbers in quarterly earnings reports weren't well received.
Our Dan Ferris described this behavior in his Friday Digest as "shooting the generals."
As Dan wrote, during late-stage bull markets, investors first sell the weaker, riskier stocks – the soldiers at the front – and hide out in the biggest, highest-quality names... until those finally crack, too. When the generals start falling, Dan says, you know the bull is in trouble.
Alphabet and Meta, for instance, are both in bear market territory. Alphabet is down 30% from its all-time high in May, and Meta is down more than 20% from its September high. The generals are taking fire, no doubt.
But there's another part of the battlefield to look at...
While the big AI spenders have been a drag on the S&P 500 Index, most of the stocks in the U.S. benchmark have gone up. It's a "good news, bad news" situation...
The S&P 500 Equal Weight Index – which gives the 500 largest U.S. companies in the index the same weight – has quietly outperformed the headline index. We've noted this in our daily reports over the past several weeks.
The S&P 500 Equal Weight Index is up about 5% over the past month and roughly 14% year-to-date. Meanwhile, the market-cap-weighted S&P 500 Index is down 2.3% and up about 10% over the same periods, respectively.
As our old friend and former Stansberry Research colleague Enrique Abeyta pointed out on social media platform X over the weekend, 72% of S&P 500 stocks rose in October.
Sure, some big names are down. But it's not an "everything is down" market. Sectors like healthcare, energy, and even real estate have been rallying lately.
In short, during the recent bout of volatility, we haven't seen equities everywhere crashing all at once. Our Ten Stock Trader editor Greg Diamond made the point in his Weekly Market Outlook this morning...
There's still a lot of fear in the market. Everyone is calling for the end of the AI bubble and worrying about a major collapse in tech stocks.
However, I believe these fears are overblown.
Yes, volatility is picking up. Yes, some tech, AI, and semiconductor stocks are getting hit pretty hard. But this is what creates lows. This pessimism and volatility are what give us such attractive opportunities as traders.
If I were seeing everything starting to melt down together, then I would probably be more bearish. But that's not what's happening, so I remain bullish today.
Now, some leverage has been flushed...
Friday looked like a capitulation of leverage as professional money managers who borrowed to bet big on tech were forced to sell all at once.
Morgan Stanley's prime-brokerage desk, which tracks how hedge funds are positioned, reported late Friday that equity exposure among these funds has hit new lows.
Since June, global hedge funds have cut more than 8% of their total gross equity exposure, which is an extreme swing of positioning over the past decade – a pullback faster than at any point since at least 2017.
As longtime readers know, markets tend to make lows when forced selling runs out, not when everybody is still all in. Of course, hedge funds reducing their equity exposure doesn't guarantee a bottom. But it is a piece of evidence to consider, and it could suggest a short-term low for tech stocks, given the level of fear around them right now... and the rotation into other "boring" sectors.
That brings up the biggest point I (Corey McLaughlin) want to share today...
The bubble might not 'pop' all at once...
If today really does rhyme with the dot-com era – as our Whitney Tilson argues – then how the dot-com boom ended is worth a look.
This part of the story rarely gets much attention and, frankly, it might be extremely important for protecting and growing your wealth in the months and years ahead.
People remember the 2000 collapse and companies like Pets.com going bankrupt. They forget the market rotation that marked the peak in tech stocks. This is the "good news, bad news."
From January 1998 through March 2000 – the late stage of the dot-com bubble – technology stocks in the S&P 500 soared more than 260%. The overall index rose about 59% over the same stretch, and defensive sectors like consumer staples fell.
Then the market flipped.
From April 2000 through December 2000, tech lost nearly half its value, and the S&P 500 fell about 11%. But utilities rose 46%... consumer staples 41%... healthcare 37%... financials 23%... and energy 13%. A basket of low-volatility stocks gained 32% while the momentum names everyone loved dropped almost 29%.
So even in one of the biggest market bubble bursts ever, money didn't exit all at once – at least at first – as this chart from Carson Group's Global Macro Strategist Sonu Varghese shows...
Bespoke Investment recently published a similar conclusion using a different set of data.
In 2000, the S&P 500 lost about 9% while the equal-weighted version gained nearly 8%. Across 2000 and 2001 combined, the regular index was down almost 20%. The equal-weight index was up nearly 6%.
To be clear, rotation didn't save everyone forever...
Once the recession and bear market deepened in 2001 and unemployment rose to a high of 6.4% in 2003, nearly everything fell.
As you can see in the first table above, from January 2001 through March 2003, every sector lost money. And in 2002 the equal-weight index fell more than 19%. Rotation can ballast a portfolio for a while, but there's no running away from the bust completely.
In short, if history rhymes this time around, we're talking about years of an AI bust... and what you do during this time can matter a lot.
If you'd owned healthcare, financials, and energy from the start of the dot-com boom in 1998 through the bottom in March 2003 – the full mania and even the full bust – you'd have made about 15%.
In the meantime, the S&P 500 lost 6% over that period. Communication services – headlined by the likes of Cisco Systems (CSCO) – lost 45%.
Beyond that, there's another part of this story...
During and shortly after the dot-com bust, some of the most successful companies of the past few decades were born or reimagined, like Google (now Alphabet), Amazon (then a bookstore), and Facebook (now Meta).
Here's the point: Even in a dot-com-style market, there are places to invest.
If most of your investments sit in an S&P 500 index fund, just know that about 40% of it rides on the 10 largest companies – mostly the AI names now under fire. Even if this current moment marks a short-term low for these stocks, there could be more pain ahead down the road.
You may want to consider spreading some of that money out, whether through an equal-weight fund or into the kinds of sectors that held up during the first part of the dot-com-bust rotation – like healthcare, energy, and consumer staples.
Healthcare and energy are up roughly 14% each in the past three months, making them the best-performing major sectors of the S&P 500. And consumer staples are up 7%. Meanwhile, communications-services stocks are down 10%. The rhyming with the dot-com days is too much to ignore.
Then there are the risks almost nobody is watching...
As Dan reminded readers on Friday, the government agreed in August 2025 to buy 433.3 million Intel shares at $20.47 apiece. That $8.9 billion deal gave the government a 9.9% stake, making it Intel's largest shareholder.
The stock went on to rally nearly 500% from its pre-deal price, and the White House enjoyed taking credit.
Friday's rout cut more than $11 billion from the value of the government's stake in a single day.
But Dan's worry goes well beyond Intel.
Since January 2025, Washington has struck dozens of deals taking direct ownership in private companies – through equity stakes, warrants, and loans, and price floors. Dan calls the result "corporatism": companies that are nominally private but increasingly steered from Washington. He believes it has inflated a bubble of its own. Here's how he put it on Friday...
There's potential for a broader crisis to emerge if more of the government's investments start going sour. I'm worried that the market's brutal assessment of Intel is the beginning of the end of the corporatist bubble.
Remember mortgage-guarantee companies Fannie Mae (FNMA) and Freddie Mac (FMCC)? They were both government-backed, loaded with politically driven risk, and ultimately rescued by a $180 billion-plus taxpayer bailout. They're still in conservatorship today.
Dan isn't making a timing call. As he says, a market top is a process, not an event. But he wants to warn you about the risks others aren't talking about... and nobody else is talking about this one.
Dan recently sat down with former Congressman Ron Paul for a new video presentation on the corporatist bubble – sharing where it came from, why it's so dangerous for your money, and what you can do to prepare before more of these government bets go bad.
Right now, folks who sign up to receive Dan's The Ferris Report also get a free copy of his new book, Capitalism in Crisis: America's New Survival Blueprint for the Crack-Up Boom, which isn't available anywhere else.
Click here to watch the presentation from Dan and Ron Paul now and get started today. (And existing The Ferris Report subscribers and Stansberry Alliance members, you can find the book here.)
New 52-week highs (as of 10/30/26): AbbVie (ABBV), American Financial (AFG), Arthur J. Gallagher (AJG), Amgen (AMGN), Air Products and Chemicals (APD), American Water Works (AWK), Alpha Architect 1-3 Month Box Fund (BOXX), Chevron (CVX), EOG Resources (EOG), Exelixis (EXEL), Gilead Sciences (GILD), Global Payments (GPN), Eli Lilly (LLY), Cheniere Energy (LNG), Lonza (LZAGY), Altria (MO), Nasdaq (NDAQ), Pfizer (PFE), Philip Morris International (PM), Ryder System (R), Roche (RHHBY), Republic Services (RSG), iShares 0-3 Month Treasury Bond Fund (SGOV), Veralto (VLTO), State Street Energy Select Sector SPDR Fund (XLE), State Street Health Care Select Sector SPDR Fund (XLV), and ExxonMobil (XOM).
In today's mailbag, feedback on Dan's Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"It's about time someone in the financial sector mentioned the elephant in the room... 'corporatism.' The political extremities and 'tribe mentality' that exists today will not end in prosperity, but poverty. In my lifetime there have always been differing opinions, but we got along and compromised. Currently the public debate is about our differences instead of where we agree. Moving forward on our agreements and compromising on our differences is when we succeed. The unfortunate reality is that the companies themselves are contributing to our countries divisions with their massive donations to political causes that promote 'corporatism'. At some point the system will collapse and we are going to have to start over as a democratic country." – Subscriber Ted B.
All the best,
Corey McLaughlin
Baltimore, Maryland
November 2, 2026
